Marvell And Infineon: Two Sides Of A Coin

Apple is selling a million iPads a month, reports Om Malik. The iPad is galvanizing the mobile device market. According to a new forecast from IDC, worldwide media tablet shipments will grow from 7.6 million units in 2010 to more than 46 million units in 2014, representing a CAGR of 57.4%. Chipmakers such as Marvell (NASDAQ:MRVL) are benefiting from this trend. However, Infineon (NYSE:IFX; IFX.DE) is not as lucky: It is looking to sell its wireless arm. Let’s take a closer look.

Tablets have become so popular that they are set to replace laptops in many market segments. In the One Laptop per Child (OLPC) scheme, they already have. Seth Weintraub of CNN Money reports that Marvell won the design for a 9-inch Android-based tablet for OLPC that will cost as little as $75. It is a significant design win for Marvell.

OLPC, a project originating from MIT, aimed to sell laptops to governments in developing countries for $100. According to BBC News, 1.2 million laptops have been deployed under the scheme, but governments are reluctant to commit to bulk orders. The new tablet, which is called XO-3 and could be launched in 2011 at a $75 cost, will feature Wi-Fi, high-quality video and still cameras, 3D graphics, and low power consumption.

Marvell, with fiscal 2010 annual revenue of $2.81 billion, last month reported first quarter revenue of $856 million, up 64% y-o-y and 2% q-o-q. Net income was $206 million, or $0.30 per share versus loss of $111 million, or $0.18 per share last year. The company ended the quarter with a cash balance of $1.35 billion. Gross margin was 59.8% versus 50.6% last year and 59.7% last quarter. Q4 coverage is available here.

Thomas Weisel analyst Kevin Cassidy says that Marvell is benefiting from having its products in China Mobile Ltd’s OPhone, in which it has eight of the nine reference designs.

For the second quarter, Marvell expects revenue of $900 million to $930 million and EPS of $0.38 to $0.43. It expects its mobile and wireless business to grow more than 25% sequentially and its networking revenue to show a mid-single-digit increase. The company expects storage, which accounts for about half of its revenue, to be flat to down a few points due to seasonality.

The stock is currently trading around $19 with a market cap of about $12 billion; the 52-week range is $11.03–$22.87.

Despite having Apple and RIM as its customers, Infineon has not been able to recover from the downturn as well as Marvell. Last year, guest author Nalini Kumar Muppala looked at the holes in the company’s wireless portfolio. According to Financial Times, Infineon, with annual revenue of €3.02 billion ($43.45 billion), is on the lookout for a buyer for its wireless business. James DeTar of Investor’s Business Daily discusses the speculation that Intel is a possible buyer. Both Intel and ARM are encroaching on each other’s territory: Intel is trying to enter the smartphone chip market, where ARM dominates, and ARM is creating waves in the Intel-dominated netbook processor market. Analyst Avi Cohen, principal at Avian Securities, says that Intel is not likely to buy Infineon’s wireless business because its chips are based on ARM. Even I believe this deal is unlikely – Intel will most likely go the organic way.

In April, Infineon reported revenue growth of 55% y-o-y and 10% q-o-q to €1.035 billion ($1.27 billion). Net income improved to €79 million ($97 million) from €66 million ($19.05 million) last quarter. Q1 coverage is available here.

Infineon raised its outlook for fiscal 2010 to more than 30% revenue growth. For the third quarter, Infineon expects revenue to increase sequentially by high single digits. The stock is trading around $5.22 after hitting a 52-week high of $7.34 on April 26.